The pipeline sector is known for steady cash flow from business operations, which gives safety to the dividend. Even though the business is reliant on the oil price, the day-to-day price movement is just noise. Further, pipelines are an oligopoly, meaning only a few companies operate in the pipeline space and, therefore, they have a large market share. They also operate like toll businesses, with the cost of using the pipeline inflating over time. Lastly, pipelines can continue to reward their shareholders thanks to their large margins. Following construction of the pipeline, there are not many more costs over time other than maintenance fees. Therefore, the payback is seen as soon as the pipeline opens for business.
One stock that all this applies to is TC Pipelines, LP (NYSE:TCP) stock. The company has operations all across the U.S., including in oil and natural gas pipelines. TCP stock would also be classified as a dividend growth stock. TC Pipelines has been a public company for 17 years, with 15 of those years seeing a dividend hike. The dividend is reviewed annually in July. Shares of TCP stock are currently trading at $53.67, with a current yield of 7.01%. High-dividend stocks typically aren’t considered to be dividend growth stocks. However, TCP stock is a rare exception, in part because pipelines are the preferred method for transporting oil.
Source: Income Investors
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